Source: Banks become more prudent | The Financial Gazette April 6, 2017
LOCAL banks are tightening their lending in a move expected to stem losses in the financial sector, results for the year to December 31, 2016 have revealed.
Banks said they would grow “quality loan books” and actively leverage on their synergies going forward.
They also said they would broaden product suites to satisfy unique customer requirements. Risk and control processes would continue to be benchmarked against best practices. The financial institutions said they continue to drive a safe banking model, underpinned by a robust risk management framework.
Banks have scaled back on credit given the low aggregate demand in the economy, liquidity constraints, defaults and the need to achieve the Reserve Bank of Zimbabwe (RBZ)’s non-performing loans (NPLs) target of five percent.
The new regime comes against the backdrop of an increase in NPLs since the economy was dollarisation in February 2009.
According to the RBZ, NPLs reached close to US$1 billion in 2014 or 20,14 percent of total loans in the banking sector.
This became the biggest threat to banking sector stability. The growing NPL portfolio within the banking sector had been a result of poor credit analysis.
The increase in NPLs resulted in the RBZ establishing the Zimbabwe Asset Management Corporation (ZAMCO) in 2014 to buy secured loans and free banks’ balance sheets of poorly performing loans so that they could start lending prudently again.
The ratio of the banking sector’s NPLs to total loans was 7,87 percent as at December 31, 2016.
The financial results show that banks are still recovering from higher than expected credit losses.
As a result, they have been tightening their lending terms on all classes of loans.
This means it is now harder to obtain a loan from local financial institutions than it was before.
Metbank Zimbabwe said its NPLs declined to 3,1 percent, which is within the regulatory threshold of five percent, as a result of aggressive loan collection and a cautious lending strategy.
“The bank continues to be aggressive in its loan collection and recovery efforts whilst underwriting a new book with caution,” said chairman, Wilson Manase.
The bank’s loan and advances decreased by 25 percent from US$28,7 million in the preceding year to US$21,5 million during the period under review.
Agricultural Development Bank of Zimbabwe (Agribank)’s chief executive officer (CEO), Sam Malaba, said the bank would increase collections to improve the bank’s NPL ratio, which stood at 20 percent as at December 31, 2016.
The bank is targeting to have its NPLs lowered to a single digit by year end.
The acquisition of NPLs by ZAMCO is expected to strengthen banks’ balance sheets, enabling them to access fresh capital to fund productive sectors of the economy and help spur economic growth.
Several banking institutions collapsed due to poorly performing loans, although the bulk of the institutions were accused of shareholder and management delinquency, with insider loans playing a key role in their insolvencies.
Ecobank Zimbabwe said its loans and advances fell by 20 percent from US$165,8 million in the previous year to US$132,8 million during the review period.
“This growth is on the back of cautious approach in the granting of credit and slow uptake of the lines of credit as the productive sector struggled to keep afloat amid the deepening liquidity crunch,” said chairman, David Whatman.
The bank said it recovered US$2,1 million of previously written off loans in the period as a result of aggressive recovery efforts.
CBZ Holdings, Zimbabwe’s largest financial group’s NPLs were largely flat at 6,6 percent during the period under review compared to 6,9 percent in 2015.
CEO, Never Nyemudzo, said the bank would maintain “strict credit granting and closer monitoring of borrowers.”
Advances remained flat at US$1 billion.
“We will continue with our cautious approach to foreign lines of credit as we watch the trends on the local interest rates to avoid pricing challenges. As such, we have deliberately allowed some lines to run down so that we take advantage of re-pricing at the appropriate time,” he said.
MBCA Bank’s loans and advances fell 7,9 percent from US$103,2 million in the prior year to US$95 million during the year to December 31, 2016, as a result of the bank’s cautious lending approach to mitigate defaults.
However, the NPLs ratio increased to 5,26 percent from 2,93 percent recorded in the prior year.
Some analysts said the high NPLs in the banking sector should partly be blamed on poor credit assessment. Most local banks started reducing their lending to productive sectors of the economy following the phenomenal growth in NPLs after dollarisation.
FBC Bank treasury executive director, Patrick Takawira, said most banks were to blame for the astronomical growth in bad loans. This, he said, was largely due to poor credit risk assessment on borrowers.
Takawira was speaking at a research workshop organised by the University of Zimbabwe’s Graduate School of Management at the university’s campus last Friday.
He said some banks extended huge sums of money to corporate or individual borrowers who had no adequate capacity to repay or towards projects needing time to take off and generate returns.
“We can do better by improving credit risk assessment starting from (loan) initiation, monitoring and evaluation,” Takawira said.
Banks are unique businesses, not only as guarantors of deposits, but also as suppliers of capital without which an economy cannot function.
This balancing act is reflected in the value of a bank’s lending as a proportion of the money it has in deposits.
FBC Bank recorded an improvement in the quality of its book, with NPLs declining from 7,9 percent in 2015 to 4,3 percent during the review period as a result of cautious lending.
“The bank’s lending portfolio marginally declined by three percent from US$208,9 million to US$202,3 million as it continues to pursue a cautious lending approach with asset quality being key priority,” CEO, John Mushayavanhu, said.
Barclays Bank of Zimbabwe’s finance director, Samuel Matsekete, said the bank had deliberately reduced its loan book owing to the poor economic environment. NPLs were largely flat at 1,6 percent for the year to December 31, 2016 compared to a market average of 7,9 percent.
“In overall terms we needed to make sure that we preserve the quality of the loan book and we do not compromise our lending practices for the sake of scale,” said Matsekete.
Stanbic Bank, a unit of South Africa’s Standard Bank, said its loan-to-deposit ratio improved from 57 percent to 43 percent as its customer deposit base grew by 48 percent from US$474 million to US$701 million.
Loans and advances increased from US$254 million in 2015 to US$273 million during the year under review, while non-performing loans increased from 2,11 percent to 3,15 percent.
The loan-to-deposit ratio is a commonly used statistic for assessing a bank’s liquidity by dividing the bank’s total loans by its total deposits. This number is expressed as a percentage. If the ratio is too high, it means that the bank may not have enough liquidity to cover unforeseen fund requirements, and conversely, if the ratio is too low, the bank may not be sweating its assets as much as it could be.
NMB Bank’s loans and advances dropped from US$243,2 million in 2015 to US$205,9 million as at December 31, 2016 due to constrained lending owing to the tough operating environment.
The bank wrote off loans and advances amounting to US$8,3 million last year after recovery efforts failed.
“The bank surrendered loans amounting to US$12,7 million to ZAMCO since its inception up to December 2016,” said NMB Bank CEO, Benefit Washaya.
ZB Financial Holdings’ bad loans rose by 8,3 percent to 23 percent for the year to December 31, 2016, from 20 percent on prior year, putting into question the bank’s credit management system and strategy. The bank was saddled with US$26 million in bad loans as at the end of 2016, compared to US$24 million reported in the prior year.
This constitutes one of the highest bad loan proportions in the local banking sector.